The key event of the week from a macro perspective was a speech by the Chinese leader Xi Jinping at the Boao conference in Hainan on Thursday in which he proposed a Global Security Initiative. It is sort of strange that he did it by video when he was just in Hainan himself a couple of days ago, but he has a busy schedule for sure. The GSI is basically a proposal for a remaking of the international system, both providing more freedom for action by states free of pressure from others, and also placing more areas of concern under international frameworks such as the UN. The basic principles of the initiative reflect the initiative in 1955 by Zhou Enlai which included the statement of non-interference in the domestic affairs of other countries, a concept which of course every state of any scale has violated in some way or another since the very beginning of history. But making the GSI a reality would presumably require many specific actions and a willingness to cede sovereignty over some crucial areas of regulation which are unlikely any time soon. And the elephant in the middle of the room was Ukraine and the question of the extent to which Russia’s actions there amount to domestic interference in the affairs of another country. The world is likely to stay in the current state of blocs and alliances for some time to come, whether we all like it or not. Another aspect of what Mr Xi said was that decoupling is not practical, that we are all part of the same ecosystem and the security of all is dependent on the harmony of the whole. That is absolutely true – decoupling does not work to the ultimate benefit of China or its economy or even its system. The question is how such general statements can be translated into practical policies and steps that enhance China’s integration into the world.
Common prosperity is at a similar stage, it seems. The policy was announced last year, and was widely hailed as a step towards creating more widespread prosperity, albeit at a lower level, throughout China society. Addressing the stark wealth gap is unquestionably a worthwhile goal, but there have been a few concrete steps taken since then to implement a policy. A wealth tax, a property tax, an inheritance tax, would all be obvious steps to level the playing field, and all of them are effective features of more sophisticated economies and systems.
Meanwhile, the lockdown in Shanghai continues, and Zero Covid remains the policy as well as being as far away as ever from being attainable. There are various suggestions out there about how Shanghai might open up over the next few weeks, but it is still a long way from being able to be sure when normalcy will return to the streets of China’s largest and most prosperous city. The experts including Zhou Nanshan, appear to be of the view that the zero is unattainable and that a more flexible policy is required, but as discussed in previous messages, changing the policy given the clear guidance from above is going to be extremely difficult, with possibly dire consequences for economic growth this year. The original target was 5.5%, and the most recent prediction we saw for Q2, from Nomura Securities, was 1.8%.
Even more interesting times are in prospect as the year progresses. Have a great weekend.